06:54 AM EDT, 05/02/2025 (MT Newswires) -- On Monday, Canada swung back behind the more left-leaning Liberals with Prime Minister Mark Carney achieving a victory on what appeared to be the decline in support for the Conservatives in favor of a government that was seen as more likely to stand up to United States President Donald Trump, said Mitsubishi UFG.

While Trump was far more important in the Canada election, a shift in polling ahead of the Australian parliamentary election on Saturday suggests there may have been an influence there too, wrote MUFG in a note to clients. Final polls released Thursday show PM Anthony Albanese and the Labor Party widening its lead over the conservative coalition, led by Peter Dutton.

A YouGov MRP poll predicts Labor will win 84 seats in the 150-seat parliament with the Liberal-National coalition winning just 47 seats. The poll predicts a 97.3% probability of a Labor majority. Dutton has described Trump as a "big thinker" and his policy ideas are similar to Trump's plans to slash government spending and had to backtrack on a policy to scrap work-from-home and cut 41,000 government jobs -- via an Australian version of DOGE.

So what might the implications be after the election, if as expected based on the polls, PM Albanese and the Labor Party win another term in office, asked MUFG. This election turned very much into a debate on cost-of-living with both parties promising giveaways to offset the negative impact. Labor has reduced the lowest tax rate from 16% to 14% over two years and promised a A$150 subsidy for energy bills to all households and one million small companies.

The Labor tax cut will cost an estimated A$17 billion and has already been passed by parliament although the conservative coalition has promised to repeal it. Both parties have announced policies to help support increased housing ownership.

The most plausible scenario in which MUFG could see a financial market reaction would be if the conservative coalition surpasses expectations and the Labor Party is forced to find outside support to govern. Even that is unlikely to be too destabilizing for the markets since it would be unlikely to compromise Labor's major policy plans.

The Australian dollar (AUD) remains vulnerable though in the bank's view to the broader global backdrop and given the likely persistent uncertainty in relation to global trade, in particular between the U.S. and China, AUD is set to underperform going forward. Since reciprocal tariffs were announced on April 2, AUD is the third worst-performing G10 currency with only Norway's NOK and USD performing worse.

MUFG still sees downside risks and higher volatility for AUD over the coming months and that won't be altered by this weekend's election result.